By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 2 November 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
I rather like the ADVFN service, and having met its CEO briefly a few times I rather liked him too. And as a house matter, there was much to commend about the staunch resistance to pressure being applied on ADVFN to put clear water between it and ShareProphets was over the way in which, for example, the Quindell fraud was being systematically unpicked in these parts. That was not just an issue of free speech, it was a matter of exposing bad people and trying to save the shirts of our readers. So I have an awful lot of time for Clem Chambers, the CEO of ADVFN.
Having said that, recent controversies over at Sefton Resources do not read well, and I look forward to some clarification over the EGM issue where Sefton claims not to have received a request which Ben Turney says was sent registered post and signed for. And with Ben Turney’s tank now on the lawn of ADVFN with the news that he has acquired a share – and can thus attend its AGM, things are hotting up. It will certainly beer and popcorn time.
But back to AIM-listed ADVFN (AFN). We had its FY numbers to June which were released by RNS at no-one-is-watching o’clock last Friday-but-one. That release promised that the full 2016 Annual Report would be posted on the ADVFN website, and yesterday it finally appeared.
The initial read of the RNS numbers showed a £524,000 pre-tax loss on revenues down from £9.3 million to £8.3 million. Mind you, that loss represented a big improvement from the previous year’s pre-tax loss of a whopping £1.8 million, and perhaps the trimming of other administrative expenses (down from £8.7 million to £7.2 million) and cost of sales (down from £1.6 million to £1.1 million) explains much of the improvement.
But we also saw negative net current assets, sitting at MINUS £741,000. That is a bit of a cause for concern, with the only mitigation of a £25,500 fundraise in August to paper over the crack. To be fair that was Chambers putting a small amount of cash back into the company.
Clearly with a hefty drop in cost of sales as well as those other administrative expenses the knives have been out at ADVFN Towers, something confirmed in the CEO statement where we see that the average head-count fell from 53 to 37. Bearing in mind that these are average figures over the year, one would imagine that the actual head-count at year-end was rather fewer than 37. Perhaps 30? 25?
We are told that an axe has been taken to costs, and that this resulted in only £36,000 of the FY loss being attributable to the second half – as compared to a first half loss of £406,000. Clearly the period of retrenchment referred to has had a significant effect.
Now all this may look pretty positive for investors, and one might even suggest that the long-promised land of profits – the jam – could even come tomorrow. On the above scored, perhaps even this accounting year. Good - although it might leave some wondering whether there was rather a lot of fat to trim which could have been excised long ago.
As for the reduced head-count, the effect on those departed with, no doubt sensitively issued, P45s will have had been devastating. But one might wonder about the effect on those left behind too. How many will be looking over their shoulder – or checking out the jobs pages?
So with all the pain heaped upon the workforce, the (still) accumulating losses and the negative working capital, how did the boardroom fare in this year of austerity at ADVFN? Did the directors lead by example, by sharing the pain? Er….
We are told in Note 6 that Employee costs (including directors) saw a total bill of £2.49 million, down from £3.33 million.
In the boardroom, 2016 total salaries and benefits saw some level of attrition, with Messrs Hodges (£273,000 vs £330,000), Chambers (£315,000 vs £383,000), Mullins (£199,000 vs £255,000) and Collom (£164,000 vs £217,000) all taking a bit of a haircut, and reducing the total boardroom bill to £951,000 (vs £1,186,000). It isn’t showing quite the same commitment to trimming costs as has been borne by the staff, is it? Indeed given that the boardroom cost about twice the annual losses, it all seems generous to a fault.
Glancing through the rest of the full audited numbers, one is drawn to the Auditor’s report. Given the state of negative working capital (MINUS £741,000) might we find an Emphasis of Matter: Going Concern? No, not a bit of it. That might seem odd, but perhaps the Independent Auditor (Grant Thornton – not to be confused with the Nomad, Grant Thornton. Oh, Er….) was convinced that the company is about to (or perhaps even has already) turned cashflow positive. Maybe.
Indeed, Note 2 to the accounts refers to the company’s cash balances of £843,000, saying that forecasts indicate that this balance will be improved during the next financial year. Accordingly the Directors have prepared these financial statements on the going concern basis.
So ADVFN is promising to turn cashflow positive during the current financial year. Good news. Except that last year's report said that it did not expect a cash balance of £1 million to go down ( it did) and that the company would do an equity fundraise very soon ( it didn't). So in terms of that section of the account ADVFN has "form."
But what’s this in Note 1?
Exemption from audit
For the year ended 30 June 2016 ADVFN Plc has provided a guarantee in respect of all liabilities due by its subsidiary company Cupid Bay Limited….thus entitling it to exemption from audit….
Does that suggest that the full liabilities of ADVFN have not, in fact, been fully audited? If so, it rather devalues the whole exercise.
Now all may be fine and dandy there, but Cupid Bay’s last numbers to have been posted as Companies House are for the year to June 2015. Those numbers were audited, so perhaps when the FY16 numbers are posted the same will be true. But as at last year Cupid Bay had net assets and net current assets of MINUS £517,753. In any case, one wonders what ADVFN is doing running an internet dating website!
In note 20 we see that shares were issued on 31 December 2015 as payment for the provision of advisory services at 50p per shares amounting to £95,000. One might normally see shares issued in this manner as evidence of a cash-crisis, yet the company seems to have plenty of cash (albeit negative working capital as at year-end). We see in Note 21 that the recipient was Mirabaud limited. Again, I’m sure everything is fine but it suggests that the cash position was rather tight earlier in the year.
We see that £155,000 was owed by ADVFN to a related party in the form of On-line Plc – an 18% shareholder with three of ADVFN’s four directors on its board. This seems to arise from advertising recharges payable by the company. It is a minor point, I think, but perhaps it will allay fears that the cash was owed to another more controversial related party.
I can’t say that this is a bargepole stock, as it does look to me as though the ship may finally be being turned around although Tom Winnifrith has explained why the second half numbers were not quite as they might appear in a recent bearcast HERE . But with a few uneasy moments reading the accounts there are enough issues to leave me cautious.
With so many staff cuts one wonders whether the company will be able to keep up with events on the technical development front. And that audit exemption seems a little troubling, as does the negative working capital situation – with or without an auditor comment.
And there are a few other issues raised by Tom in his Bearcast HERE regarding the investor show which suggest that the bat was not entirely straight.
I may like the service offered by ADVFN – indeed I think it is great. I have a lot of time for Chambers. But I don’t think I’ll be falling in love with its shares just yet. Not even with an arrow from Cupid Bay.
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